Roger Ailes Settlement Could Put 21st Century Fox in Dicey Legal Spot

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Roger Ailes

Would shareholders agree that paying for Ailes' "personal" problems constitutes best use of corporate money?

Try as it might, 21st Century Fox has not yet been able to get past discrimination and harassment allegations hurled at former Fox News chief Roger Ailes. The company has retained a top law firm to conduct an internal investigation and terminated Ailes' employment, but there's many tripwires ahead.

One is what to do about Gretchen Carlson's lawsuit against Ailes. As a federal judge weighs arguments about whether to send the dispute to arbitration, the parties are engaged in settlement talks, The Hollywood Reporter has confirmed. What's notable here is not the emergence of settlement discussions (that's routine), but per a Vanity Fair article which first reported the development, the fact that Fox has a seat at the negotiating table. After all, Fox is very purposely not a defendant in the lawsuit.

Fox is advancing Ailes' legal costs and is indemnifying him pursuant to Delaware law and the company's bylaws, according to a source. That's why Fox has such a seat. But in doing so, the entertainment giant is in a bit of a tricky spot and is wading into somewhat of a murky area of law.

"The shareholders don't want to be paying fees or the settlement for someone who has engaged in personal wrongdoing," says Mike Delikat, who heads the employment litigation practice at Orrick. "If the allegations are true, then it's not a business matter and it would be improper for a corporation to indemnify him for proven wrongdoing."

Of course, Ailes hasn't been found liable of anything quite yet — and even the internal investigation being conducted by Paul, Weiss isn't complete.

According to legal experts, Delaware law only mandates indemnification when an officer has been successful on the merits of a legal action, though its corporate bylaws could mean 21st Century Fox has a duty anyway. (The company agrees to defend its officers to the fullest extent permitted by law.) On the other hand, some states frown on providing executives with broad indemnification. Delaware is fairly permissive. The challenging question here is this: If 21st Century Fox determines that Ailes acted in "bad faith" and in a manner opposed to the best interest of the corporation, can it indemnify him? If not, might 21st Century Fox be inviting a shareholder lawsuit if it chooses to pay to make Ailes' problems go away?

"I do see the potential for shareholders to raise issues depending on how much they pay," says attorney Kate Gold at Drinker Biddle.

These questions don't have easy answers, and Fox will have to use its best judgment on the matter. A very public trial raising the specter of its executives and talent testifying could be part of the analysis. If a settlement heads off such an event, Fox would also have to decide whether the money it is giving to Carlson is "material" enough to report to shareholders. Regardless of any decision made, those shareholders might not agree that Fox has exercised sound judgment in figuring out what is best for the company. Plus, they could object to Ailes' alleged use of corporate money to investigate troublemakers or raise hackles over revelations concerning past millions paid out to hide alleged harassment. There could be a good reason why Fox is now asking that Ailes fund at least a portion of a settlement with Carlson.

Even if Fox is able to put Carlson's lawsuit to bed, there are other tough spots beckoning.

On Monday, for instance, New York Magazine reported that Fox host Andrea Tantaros also has complained about Ailes’ inappropriate sexual behavior toward her.

What does 21st Century Fox do in regard to Tantaros' lawyer sounding the war chimes? Does it wait for Ailes to get sued in open court — potentially repeating what's happening in the Carlson dispute — or does it settle with her or take an affirmative step like filing an arbitration claim against Tantaros for breaching the confidentiality provision of her employment contract?

Doing the latter would no doubt entail a bunch of bad headlines, but if Fox deems that the wisest course in the Carlson suit is to settle up and avoid the possibility of things like embarrassing audio recordings becoming public or someone like Megyn Kelly having to give a deposition, why wouldn't it similarly look to button up the Tantaros allegation as quickly as possible?